Wednesday, April 02, 2008
Weathering the Financial Storm
By U.S. Senator Chuck Grassley of Iowa
As a greater share of take-home pay gets spent on fuel and food, more families are wondering what’s yet in store at the pump and the grocery store. How will household budgets withstand the forces driving up consumer costs and gobbling up a bigger slice of disposable income? The declining value of the dollar and increased global demand for limited resources continues to put upward pressure on prices paid for living essentials. Rising energy costs drive up prices even more due to higher transportation expenses it takes to get products to market.
Will some predictions ring true in Iowa where milk and gas could reach as high as $4 a gallon by summer? As commodity prices nose up, more consumers are beginning to ratchet down spending on other goods and services.
The anxiety on Main Street is fed by the national downturn in the housing, mortgage and credit markets. And the upheaval occurring on Wall Street adds to a sense of unease. The concerns shared by Iowans during my visits in 35 counties in March reinforced my commitment to ensure the taxpaying public doesn’t get shortchanged by the taxpayer-backed rescue of the failing Bear Stearns investment firm.
As ranking Republican on the Senate Finance Committee, I launched a bipartisan review of the $29 billion stake that taxpayers now have on the buy-out. The involvement of the Federal Reserve as a lender-of-last-resort to a giant investment bank may set an unwanted precedent. I’m also wary if top executives come out smelling like a rose at the expense of rank-and-file workers and loyal shareholders.
During the aftermath of the Enron collapse and other corporate meltdowns earlier in the decade, we learned hubris at the helm can be a recipe for disaster. As then-chairman of the tax-writing policy committee in the U.S. Senate, I led the charge to strengthen corporate governance and accountability, including reforms that would protect employees’ pensions from being raided by greedy executives; close abusive tax shelters that cheat the taxpaying public; and, prevent executives from enriching themselves with sweetheart compensation packages that leave the workforce, investors and creditors high-and-dry when a company goes bankrupt.
Lessons learned from my oversight and legislative work earlier in the decade to crack down on corporate mismanagement and improve transparency for workers, investors and taxpayers will come into play as Congress investigates the negotiations that put billions of tax dollars at risk.
Congress created the Federal Reserve nearly a century ago to avert panics and bank runs during times of financial crisis. It is charged with setting monetary policy and providing a steady hand to protect our financial and credit systems from collapse.
As an elected representative in the people’s branch of the federal government, I will aggressively exercise my Constitutional oversight responsibilities to better understand the details of this unprecedented taxpayer-backed bail-out on Wall Street. We need to figure out potentially damaging long-term consequences before it’s too late.
Taking risks is the linchpin of our entrepreneurial, capitalist society. The allure of America ’s free market system appeals to the masses because it holds the promise of economic opportunity, individual prosperity and a better life for those willing to work hard. The American Dream resides in the notion of pulling oneself up by the bootstraps. The Fed was created to rein in risky practices that would jeopardize market stability. But large-scale taxpayer-backed bail-outs can wrongfully influence the risks and rewards of the free marketplace and introduce a boot in the gut of our system of making and lending money. Government bail-outs ought to be a limited option of last resort.
Before an overhaul of the financial system becomes an election-year rallying cry, policymakers should not make knee-jerk decisions that would change the regulatory regime of the financial system. First, Congress needs to get all the facts out in the open about the Bear Stearns buy-out to make thoroughly digested decisions. Did the Fed’s decision to put billions of taxpayer dollars on the hook create a moral hazard that opens the backdoor to future taxpayer-backed bail-outs? Does it give the big guys the green light to go ahead and make bad loans because the Fed won’t let them fail?
From my ranking position on the Senate Finance Committee, I’m digging into the details of the Bear Stearns bail-out to make sure the same mistakes aren’t repeated. As the financial system recovers from this episode, I want a lesson made crystal clear as we move forward. Investment goliaths can’t be let off the hook each time the going gets rough so that taxpayers hang from it.
From my leadership position in Washington , I’ll do what I can to steer the U.S. economy towards sunnier skies. And that means advancing public policies that help working families to get ahead, including making college more affordable and enacting permanent, pro-growth tax relief that fosters wealth creation and allows small businesses to create good-paying jobs up and down Main Street .